Individuals typically differ in their identities—the behaviors they deem ideal for themselves and for the members of their network—and in their tolerance for behaviors that deviate from their ideals. This paper studies compromise—that is, departures from one’s ideal point, to be accepted by others. I show that an individual’s compromise in equilibrium is bounded by the difference between her tolerance level and the lowest tolerance level in society. Relatively intolerant individuals, who serve as “bridges,” are critical for reciprocated compromise. When individuals with extreme identities are systematically less tolerant, societies polarize. In contrast, intolerance among moderates encourages cohesion.

We study informal insurance within communities, explicitly recognizing the possibility that subgroups of individuals may destabilize insurance arrangements among the larger group. We therefore consider self-enforcing risk-sharing agreements that are robust not only to single-person deviations but also to potential deviations by subgroups. However, such deviations must be credible, in the sense that the subgroup must pass exactly the same test that we apply to the entire group; it must itself employ some self-enforcing risk-sharing agreement. We observe that the stability of subgroups is inimical to the stability of the group as a whole. Two surprising consequences of this analysis are that stable groups have (uniformly) bounded size, a result in sharp contrast to the individual-deviation problem, and that the degree of risk-sharing in a community is generally non-monotonic in the level of uncertainty or need for insurance in the community.

This paper develops a theory in which society-wide economic outcomes shape individual aspira-tions, which affect the investment incentives of individuals. Through its impact on investments, aspirations in turn affect ambient social outcomes. We explore this two-way link. A central feature is that aspirations that are moderately above an individual’s current standard of living tend to encourage investment, while still higher aspirations may lead to frustration and lower investment. When integrated with the feedback effect from investment, we are led to a the-ory in which aspirations and income evolve jointly, and the social determinants of preferences play an important role. We examine conditions under which growth is compatible with long-run equality in the distribution of income. More generally, we describe steady state income distri-butions, which are typically clustered around local poles. Finally, the theory has predictions for the growth rates along the cross-section of income. We use these predictions to calibrate the model so that it fits growth data by income percentile for 43 countries, and back out the implicit aspirations-formation process that underlies these observations.

We conceptualize and measure upward mobility over income or wealth. At the core of our exercise is the Growth Progressivity Axiom: transfers of instantaneous growth rates from relatively rich to poor individuals increases upward mobility. This axiom, along with mild auxiliary restrictions, identifies an “upward mobility kernel” with a single free parameter, in which mobility is linear in individual growth rates, with geometrically declining weights on baseline incomes. We extend this kernel to trajectories over intervals. The analysis delivers an upward mobility index that does not rely on panel data. That significantly expands our analytical scope to data-poor settings. (JEL D31, D63, I32, O15, O40)

Putnam defines social capital as “features of social organization, such as networks, norms and social trust that facilitate coordination and cooperation ” (Putnam 1995: 67). Social networks are typically associated with social trust and with norms that promote coordination and cooperation for mutual benefit. Strong ties between individuals, infused with norms of reciprocity and trust, are often thought to help cooperation among them. They would enable these groups and society as a whole to deal smoothly and effectively with multiple social and economic issue. Other authors have noted that, in different contexts, strongly bonded groups may have adverse consequences for others (such as Portes and Landolt (1996)) or for themselves (see for instance Akerlof (1976) or Basu (1986)). Based on our earlier work on risk sharing in groups and networks (Genicot and